New Broadband Norms May Hurt Comcast-Time Warner Cable Deal - Analyst Blog

Yesterday, the U.S. telecom regulator, Federal Communications Commission (FCC), increased the download and upload speed of the Internet to be deemed as broadband (high-speed data). In a majority voting, the FCC raised the new threshold download speed to 25 Mbps from existing 4 Mbps while the upload threshold speed boosted to 3 Mbps from the current 1 Mbps.

The new broadband norms may pose major hurdle to the proposed Comcast Corp. (CMCSA) and Time Warner Cable Inc. (TWC) merger. In Feb 2014, Comcast had reached an agreement with Time Warner Cable to acquire the latter in an all-stock deal valued at around $45.2 billion. The merger between the nation’s largest and second largest cable MSO (multi service operator) has been facing tough scrutiny and close monitoring by the regulator.

In order to avoid antitrust restriction, Comcast decided to divest around 3.9 million Time Warner Cable video subscribers to Charter Communications Inc. (CHTR) to maintain its total market share at 35% of the U.S. pay-TV industry. Charter Communications, which earlier made an attempt to acquire Time Warner Cable, is partially controlled by Liberty Media Corp. (LMCA).

The recent changes made in minimum broadband speed will raise the combined Comcast-Time Warner Cable market share to more than 50% even after the disinvestment of customers to Charter Communications. Comcast serves a high percentage of high-end broadband users which will in turn increase the overall market share of the combined entity as the speed limit has increased considerably. The regulator may reject the proposed merger on ground of an increased market share.

Notably, the FCC will vote on the much-debated rules concerning net neutrality in Feb 26, 2015. If FCC adopts net neutrality, then it will further jeopardize the Comcast-Time Warner Cable deal as the regulator may demand more concession from Comcast in order to clear the deal.

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